Gold Moves Sideways Ahead of the Fed Interest Rate Decision
The gold price (XAU) moved within the 2,324–2,344 range on Monday due to a lack of important news or other driving factors.
Although German CPI grew from 0.4% in March to 0.5% in April, the data didn't affect XAU/USD. The market is focused on other events: the Federal Reserve's (Fed) interest rate decision tomorrow and Nonfarm Payroll data on Friday. Since US inflation has shown no signs of slowing, it may be challenging for Fed policymakers to describe their next steps. According to the CME's FedWatch tool, the US central bank is expected to hold its benchmark interest rate steady at 5.25%–5.5% at the meeting. Traders await hawkish rhetoric from Fed representatives, so the US Dollar Index (DXY) rose in today's Asian and early European trading sessions. Also, geopolitical risks have eased. The combination of these factors poses a risk of a downward correction for XAU/USD.
On the other hand, if the Fed sounds less hawkish than the market expects, it may provide strong support for the gold price. Additionally, the demand for bullion remains high due to strong physical demand from China and ongoing geopolitical risks in the Middle East.
XAU/USD declined in the Asian and early European trading sessions, losing 0.52%. Key data for the week will be tomorrow's Federal Open Market Committee (FOMC) monetary policy meeting and Friday's Nonfarm Payroll report. Still, the US Consumer Confidence report will be released today at 2:00 p.m. UTC and might affect XAU/USD. Higher-than-expected numbers will likely put bearish pressure on the pair. Meanwhile, if consumers are pessimistic, the US dollar may weaken, pushing XAU/USD higher.
Eurozone Data Will Affect Euro Today
The euro (EUR) fluctuated on Monday, slightly rising towards 1.07100 after moving in a narrow range. The market is now waiting for Wednesday's Federal Reserve (Fed) monetary policy meeting.
The German Consumer Price Index (CPI) inflation rose to 0.5% month-on-month in April, increasing from March's 0.4% but staying below the forecasted 0.6%. The Harmonized Index of Consumer Prices (HICP) for Germany increased to 2.4% year-on-year, compared to the anticipated 2.3%. The eurozone's HICP inflation report for April will be released today at 9:00 a.m. UTC and should offer insight into the inflation trends in the euro area. Overall, eurozone inflation is expected to remain steady at 2.4%. Investors largely anticipate that the Fed won't change the US interest rates this week, but traders await any insights into the potential timing of rate cuts this year. The CME's FedWatch Tool indicates a 57.9% chance of the first rate cut in September.
Expectations of a more hawkish monetary policy from the US central bank have boosted demand for the US dollar (USD). The market currently anticipates 67 basis points of interest rate cuts from the European Central Bank (ECB) compared to only 35 basis points of reductions expected from the Fed in 2024. The rising USD and expectations that the ECB will cut interest rates in June put downward pressure on EUR/USD.
EUR/USD was falling in the Asian and early European trading sessions. Today, traders should monitor key data releases from the eurozone: Germany's Gross Domestic Product (GDP) report at 8:00 a.m. UTC and eurozone GDP and Consumer Price Index (CPI) data at 9:00 a.m. UTC. Better-than-expected figures will likely push EUR/USD towards 1.07600. Conversely, underperforming data will put additional bearish pressure on the pair, potentially pulling it further to 1.06600.
Soft Canadian GDP Data May Bring Down the Canadian Dollar
The Canadian dollar (CAD) was moving sideways on Monday, weighed down by falling oil prices—the main Canadian export commodity.
The falling oil prices exert downward pressure on the Canadian dollar as Canada is a major oil exporter, and the currency is closely tied to commodity markets. Moreover, a hawkish stance by the US Federal Reserve's (Fed) policymakers has further deepened the bearish trend in CAD. Fed Governor Michelle Bowman indicated 'upside risks' to inflation, while Minneapolis Fed President Neel Kashkari suggested that no rate cuts may occur this year. Additionally, Atlanta Fed's President Raphael Bostic was willing to consider rate hikes if inflation continues to accelerate. These hawkish comments strengthened the greenback, pushing up USD/CAD. As for the Canadian interest rate path, traders expect the Bank of Canada (BOC) to begin cutting interest rates only in June or July.
USD/CAD was increasing in the Asian and early European trading sessions. Today's monthly Gross Domestic Product data for February is due at 12:30 p.m. UTC. The report may provide insights into the Canadian economy's performance. If the data is lower than expected, the BOC may consider decreasing the base rate sooner, weakening the Canadian dollar. Otherwise, the currency may strengthen. Additionally, a further decline in oil prices could place more downward pressure on CAD.